Paying for college is one of the biggest financial challenges students and families face today. Fortunately, the U.S. government offers powerful tax credits specifically designed to ease the burden of higher education costs. The two main options — the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) — can put thousands of dollars back in your pocket. Understanding the tax credit for college students available right now can significantly reduce what you owe the IRS or increase your refund.What Is a Tax Credit for College Students?A tax credit for college students is a dollar-for-dollar reduction in the amount of income tax you owe. Unlike deductions that only reduce taxable income, credits directly lower your tax bill. The two primary education credits are:
- American Opportunity Tax Credit (AOTC) – Up to $2,500 per eligible student
- Lifetime Learning Credit (LLC) – Up to $2,000 per tax return
Both credits help cover qualified education expenses such as tuition, fees, and course materials.American Opportunity Tax Credit (AOTC) – The Best Tax Credit for Most College StudentsThe AOTC remains the most generous tax credit for college students in 2025.Key Features of the AOTC
- Maximum credit: $2,500 per eligible student
- 100% of the first $2,000 of qualified expenses + 25% of the next $2,000
- Up to $1,000 of the credit is refundable (you can get money back even if you owe no tax)
- Available for the first four years of post-secondary education
- Student must be enrolled at least half-time in a degree or credential program
- Must be pursuing a degree or recognized educational credential
Who Qualifies for the American Opportunity Tax Credit?
- The student must be you, your spouse, or a dependent you claim on your tax return
- Income limits (2025): Full credit available if modified adjusted gross income (MAGI) is $80,000 or less ($160,000 for married filing jointly). Partial credit up to $90,000 ($180,000 joint)
- No felony drug conviction on the student’s record
Lifetime Learning Credit (LLC) – Flexible Tax Credit for College and BeyondThe LLC is broader and works well for part-time students, graduate students, and those taking classes to improve job skills.Key Features of the Lifetime Learning Credit
- Maximum credit: $2,000 per tax return (20% of up to $10,000 in qualified expenses)
- Non-refundable (only reduces tax owed to zero)
- No limit on the number of years you can claim it
- Available for undergraduate, graduate, and professional degree courses
- Even one single course qualifies
- No half-time enrollment requirement
Who Qualifies for the LLC?
- Same income limits as AOTC: Full credit up to $80,000 MAGI single ($160,000 joint)
- Can be claimed for yourself, spouse, or dependent
- Courses must be at an eligible educational institution
AOTC vs LLC: Which Tax Credit for College Students Should You Choose?You cannot claim both credits for the same student in the same year, so choose wisely:
|
Feature
|
American Opportunity Credit
|
Lifetime Learning Credit
|
|---|---|---|
|
Max Credit
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$2,500 per student
|
$2,000 per return
|
|
Refundable portion
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Up to $1,000
|
None
|
|
Years allowed
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First 4 years only
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Unlimited
|
|
Enrollment requirement
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At least half-time
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Any enrollment
|
|
Best for
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Traditional undergrads
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Grad students, part-time, working professionals
|
Most full-time undergraduate students in their first four years benefit more from the AOTC.Qualified Expenses for Education Tax CreditsBoth credits cover:
- Tuition and required fees
- Books, supplies, and equipment needed for enrollment (even if not paid to the school — huge for AOTC)
They do NOT cover:
- Room and board
- Transportation
- Insurance
- Non-credit courses (with rare exceptions)
How to Claim Your Tax Credit for College Students
- Receive Form 1098-T from your college (sent by January 31)
- Use IRS Form 8863 with your 1040 or 1040-SR
- Attach Form 8863 to your tax return
- Keep receipts for books and supplies (especially important for AOTC)
Common Mistakes That Cost Students Thousands
- Claiming the wrong credit for your situation
- Forgetting to include books and supplies (especially for AOTC)
- Missing the 1098-T form and not following up with your school
- Double-dipping by claiming both tuition deductions and credits
- Not adjusting scholarships/grants properly on Form 8863
Special Situations and TipsIndependent StudentsIf you’re not claimed as a dependent, you can claim the credit yourself — even if your parents paid the bills.Parents vs Students Claiming the CreditWhoever claims the student as a dependent gets the credit. Sometimes it makes sense for parents to skip claiming you as a dependent so you can claim the refundable AOTC yourself.Graduate StudentsOnly the LLC is available after your first four undergraduate years.Study AbroadEligible if the school participates in U.S. federal student aid programs.Start Planning Your Tax Credit for College Students TodayThe American Opportunity Tax Credit and Lifetime Learning Credit remain two of the most valuable tax breaks available. A typical full-time undergraduate can save $2,500 per year with the AOTC — that’s $10,000 over four years. Even part-time and graduate students can reduce their tax bill by up to $2,000 annually with the LLC.Review your (or your student’s) enrollment status, income, and expenses now to determine which tax credit for college students will give you the biggest benefit when you file in 2026.Every dollar saved on education is a dollar you can use toward graduation — faster and with less debt.